Tuesday, July 18, 2017

Comments sought on proposed rule designating IEX listings covered securities

By Rebecca Kahn, J.D.

The SEC issued a proposed amendment to Securities Act Rule 146 to designate certain securities on Investors Exchange LLC (IEX) as covered securities. The designation would mean that IEX-listed securities would not be subject to state securities law registration and qualification requirements. Comments are due within 30 days of publication in the Federal Register (Release No. 33-10390, July 14, 2017).

Background. Securities Act Section 18 was amended in 1996 to exempt from state registration requirements securities listed, or authorized for listing, on named markets (NYSE, NYSE American, or Nasdaq/NGM) or any national securities exchange designated by the Commission to have listing standards that are “substantially similar” to those of the Named Markets.

In response to petitions by various exchanges, in 1998 the Commission adopted Rule 146(b) pursuant to Securities Act Section 18(b)(1)(B), finding the specific listing standards of those exchanges substantially similar to those of the Named Markets. Thus, securities listed pursuant to those standards were deemed to be “covered securities” exempt from state securities registration and qualification requirements.

IEX petition. In June 2016, the Commission granted IEX’s application to become a registered national securities exchange. IEX later petitioned to amend Rule 146(b) and determine that the listing standards for IEX-listed securities are substantially similar to those of the Named Markets, making them covered securities under Securities Act Section 18(b).

After reviewing the IEX’s qualitative and quantitative listing standards, the Commission “preliminarily believes” them to be substantially similar to those of Named Markets under Section 18(b)(1)(B) of the Securities Act.

The proposed amendment includes an extensive analysis of the proposed rule’s potential economic impact (including costs of state filing and corresponding legal fees, costs for broker-dealers, and compliance costs), the competitive landscape, and potential impact on the trading services market. The Commission invited commenters to suggest how the “costs, benefits, and the potential impacts” of the proposed amendment on SEC’s mission can be quantified.

The release is No. 33-10390.

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